From the NY Post
http://www.nypost.com/p/news/business/pecker_package_pIeVgxSMS2ivIFA8MO8OBJPrepack bankruptcy is Halloween surprise at AMI
National Enquirer publisher American Media has some sensational news of its own: bankruptcy.
Faced with resistance from a single balky bondholder, the company, which also owns Shape and Star, is scrapping the debt-for-equity swap it has labored to patch together for months and will restructure its crushing debt through a prepackaged Chapter 11 bankruptcy filing instead.
American Media chief David Pecker declined to comment on the specifics when reached yesterday, but said he expects a formal filing to take place within two weeks and for the company to emerge from bankruptcy within 60 days, shedding considerable debt in the process.
Our ultimate goal when we began working with our bondholders last spring was to fix our balance sheet, which this accomplishes. So while I am satisfied that the end does justify the means in this case, it's not the action the vast majority of the bondholders or I would have preferred," Pecker told The Post.
Even as it struggled to pull off the debt-for-equity swap up until the final deadline at 5 p.m. last Friday, the company quietly prepared a prepackaged plan behind the scenes, sources said.
AMI retained law firm Akin & Gump to handle the filing. Under terms of Chapter 11, a company continues to operate while it seeks to come to terms with its creditors.
Pecker added that under the prepackaged deal he expects all employees, vendors and other creditors will be paid 100 percent on the dollar.
Meanwhile, bondholders, who are collectively owed about $355 million, will still end up controlling 95 percent of the stock of the company.
Most of AMI's bondholders were apparently willing to go along with a plan that would have swapped debt for new equity. The principal bondholders include Avenue Capital Management, Angelo Gordon & Co. and Capital Research.
Oppenheimer Funds, the fourth-largest bondholder with about 15 percent of the bonds, is said to have balked at that deal. Oppenheimer did not return calls for comment.
The deal now off the table would have reduced the total debt to $500 million from $855 million.
In the February 2009 restructuring, the company sliced its original debt load of $1.1 billion down to about $825 million while wiping out virtually all of the equity stake of original investors Evercore Partners and Thomas H. Lee & Partners.
Revenue for the year ended in March dipped 3.1 percent to $412 million, compared to $425 million in the year-earlier period.
Free cash flow actually inched up by $2 million to $114 million, but much of that was sucked out by bond and bank debt service of close to $100 million a year.
The credit rating firms took AMI to task this summer when it skipped interest payments to bondholders. Frantic negotiations ensued, with a deadline for a deal reset at least four times until the final miss on Friday set in motion the prepackaged bankruptcy
